Federal Life Insurance: Permanent Or Term?

There are two main types of life insurance: term insurance and permanent life insurance. Term insurance is typically a simpler, more affordable option that provides coverage for a set period, while permanent life insurance offers lifelong coverage and additional benefits such as cash value accumulation. The Federal Employees' Group Life Insurance (FEGLI) Program, established in 1954, is the largest group life insurance program globally, covering over 4 million federal employees and their family members. FEGLI is a form of group term life insurance, which means it does not accumulate cash value over time. This paragraph will explore the key differences between federal life insurance and other term and permanent life insurance options to help individuals make informed decisions about their financial protection needs.

Federal Employees' Group Life Insurance (FEGLI) Program

The Federal Employees' Group Life Insurance (FEGLI) Program is a group term life insurance program established by the Federal Government on August 29, 1954. It is the largest group life insurance program in the world, covering over 4 million federal employees, retirees, and their family members.

Most federal employees are eligible for FEGLI coverage and, in most cases, new federal employees are automatically enrolled in the Basic life insurance coverage. This basic coverage is shared between the employee and the government, with the employee paying 2/3 of the total cost and the government paying the remaining 1/3. The Basic life insurance coverage provides a death benefit equal to the actual rate of annual basic pay (rounded to the next $1,000) plus $2,000, or $10,000, whichever is greater. There is also an Extra Benefit for employees under age 45, which provides double the life insurance benefits until age 36, decreasing at 10% per year until age 45.

In addition to the Basic coverage, there are three forms of Optional insurance that employees can elect: Option A, Option B, and Option C. Option A provides an additional $10,000 of coverage, which doubles in the case of accidental death. Option B allows employees to purchase one to five multiples of their pay as additional coverage. Option C is family insurance, which covers an employee's eligible family members with each multiple being equal to $5,000 upon the death of a spouse and $2,5000 upon the death of an eligible child. Employees must have the Basic insurance coverage to elect any of the optional coverages.

The FEGLI program also includes Accidental Death and Dismemberment coverage for employees, which provides benefits in the event of accidental death or loss of limb or eyesight. These benefits are available under both the Basic Insurance and Option A coverages.

The Office of Federal Employees' Group Life Insurance (OFEGLI), a private entity contracted by the Federal Government, is responsible for processing and paying claims under the FEGLI Program.

FEGLI coverage

Federal Employees' Group Life Insurance (FEGLI) is a term insurance program that was established by the Federal Government on August 29, 1954. It is the largest group life insurance program in the world, covering over 4 million Federal employees, retirees, and their family members.

FEGLI provides group term life insurance, which means it does not accumulate cash value or paid-up value. It offers Basic life insurance coverage, which most new Federal employees are automatically enrolled in, and three forms of Optional insurance that employees can elect to add. The Basic insurance cost is shared between the employee and the Government, with the employee paying 2/3 and the Government paying 1/3. The employee's age does not affect the cost of Basic insurance, but it does influence the cost of Optional insurance, which the employee pays in full.

The Basic life insurance coverage provides a death benefit equal to the actual rate of annual basic pay (rounded to the next $1,000) plus $2,000, or $10,000, whichever is greater. There is also an Extra Benefit for employees under age 45, which doubles the life insurance benefits until age 36 and then decreases by 10% per year until age 45.

The three forms of Optional insurance are:

• Option A - Standard, which provides an additional $10,000 of coverage, doubling in the case of accidental death.
• Option B - Additional, which provides one to five multiples of pay.
• Option C - Family, which insures an employee's eligible family members with one to five multiples of coverage, with each multiple providing $5,000 upon the death of a spouse and $2,500 upon the death of an eligible child.

Employees can decrease their FEGLI coverage at any time by completing an SF 2817, Life Insurance Election form.

Permanent life insurance benefits

Permanent life insurance, also known as universal life, variable universal life, or whole life insurance, is intended to last a person's entire lifetime. The premium is generally higher than term life insurance because it not only funds the tax-free death benefit but also a cash value account. Permanent life insurance policies are a good fit if you have significant financial obligations that are not time-sensitive.

Tax-Free Death Benefits

The beneficiary of a permanent life policy receives a guaranteed death benefit when the policyholder passes away, and in most cases, it's tax-free. This means that your loved ones will be financially protected no matter when you pass away.

Build Cash Value

A permanent life insurance policy can build a "cash value" that policyholders can withdraw during their lifetime. This cash value grows over time and can be used for a number of purposes, including low-interest loans, while the policyholder is alive. This provides financial flexibility and the option to supplement your retirement income.

Provide Financial Stability

If your spouse or children depend on your income, permanent life insurance can provide financial support and stability when you're gone. The death benefit can help cover living expenses and ensure your family's financial security.

Long-Term Peace of Mind

Permanent life insurance is intended to last a lifetime, providing long-term peace of mind. The premium generally stays the same, and you can rest assured that your family will be taken care of even if the breadwinner passes away.

Safe Investment Option

Many permanent life insurance policies offer a guaranteed interest rate on the "cash value" that accumulates over time. This provides a stable and secure investment option, especially for those who may not be disciplined savers.

Affordable Premiums for Young Insureds

Buying permanent life insurance when you're young offers affordable premiums that can remain locked in throughout your lifetime. This allows you to secure coverage at a lower cost and maintain it as you age.

Term life insurance benefits

Term life insurance is the simplest form of life insurance. It is a contract between the policy owner and the insurance company. The owner agrees to pay a premium for a specific term, and the insurance company promises to pay a specific death benefit to the beneficiary upon the death of the insured. Term life insurance is usually the least costly form of life insurance because it offers a death benefit for a restricted time and has no cash value.

Term life insurance is attractive to young people with children as it provides substantial coverage for a low cost. It is well-suited for people with growing families, allowing them to maintain the coverage needed until their children reach adulthood and become self-sufficient. The term life benefit may also be useful for an older surviving spouse, although premiums will be higher than if they had taken out a level-term policy when they were younger.

Term life insurance quotes are competitive and dependable, and most term policies have premiums that remain the same for the entire length of the policy. The cost of this coverage type is usually low, and you can choose the term length that suits you best. If planned correctly, a term policy may save you money upfront and provide your family with ample security.

There are several types of term life insurance policies, including level term, yearly renewable term, decreasing term, and annual renewable. Level term insurance has a fixed monthly payment for the life of the policy, with the death benefit remaining the same throughout the duration of the policy. Yearly renewable term policies are one-year policies that can be renewed each year without providing evidence of insurability, but the premiums will increase as the insured person ages. Decreasing term policies have a death benefit that declines each year according to a predetermined schedule, while the policyholder pays a fixed level premium for the duration of the policy. Annual renewable policies provide coverage on a yearly basis and must be renewed by the policy end date to continue coverage; the premiums for this type of policy usually increase each time it is renewed.

Permanent life insurance costs

Permanent life insurance, also known as whole life insurance, is one of the two basic types of life insurance, the other being term insurance. Permanent life insurance provides long-term financial protection and includes a death benefit and, in some cases, cash savings. Because of the savings element, premiums for permanent life insurance tend to be higher than those for term insurance.

The average cost of whole life insurance is $440 per month. This figure is based on a $500,000 whole life insurance policy for a healthy 30-year-old. However, personal rates depend on age, gender, health, hobbies, and the amount of coverage required. For example, a 30-year-old female non-smoker in good health can expect to pay $408 per month for a whole life insurance policy with a $500,000 payout. On the other hand, a 30-year-old male non-smoker with a similar health profile can expect to pay $472 per month for the same coverage.

The cost of whole life insurance depends on several factors, including age, health profile, gender, and the type of policy. Each year that an individual delays buying a life insurance policy, premiums increase by an average of 4.5% to 9%. Generally, the younger and healthier the individual, the lower the cost of the policy. Certain pre-existing conditions, such as heart disease, diabetes, or cancer, usually have a greater impact on premiums. Other factors that can influence rates include lifestyle, hobbies, and criminal history.

Whole life insurance policies typically come with higher premiums than term life policies because the coverage lasts a lifetime and includes a cash value component. The cash value of the policy accumulates tax-free and can be accessed through a loan or partial withdrawal. While term life insurance offers basic coverage without building cash value, whole life insurance provides permanent coverage and the opportunity to build savings.

Frequently asked questions